• Keep BUY and MYR2.67 TP, 24% upside with c.5% yield. 9M24 core earnings of MYR122m (+26% YoY) were in line with expectations, making up 75% and 74% of our and Street’s full-year projections. We forecast a 3-year (FY23-26) earnings CAGR of 14%, backed by steady job flows from Penang and the Klang Valley, coupled with stronger property development contributions. Kerjaya Prospek declared an interim dividend of MYR0.03 and special dividend of MYR0.04 in 3Q24, bringing the FY24 cumulative payout to MYR0.12. We now expect a dividend payout of MYR0.15 for FY24.

• Results review. The construction arm saw a PAT of MYR44m (+19% YoY) in 9M24, backed by higher progress billings from ongoing jobs – sustaining a commendable PAT margin of 10.1% (9M23: 10.7%). Meanwhile, the property development segment recorded a PAT of MYR6.9m in 9M24 (9M23: MYR2.4m), backed by property sales for The Vue @ Monterez (GDV: MYRc.300m) and Papyrus @ North Kiara (GDV: c.MYR500m) projects with c.74% and c.44% take-up rates (bookings and signed sales & purchase agreements) as of end 3Q24.

• KPG’s construction orderbook as of 26 Nov is c.MYR4.4bn (3x cover ratio). The group has secured c.MYR1.6bn worth of new jobs YTD vs our FY24 job replenishment target of MYR1.7bn. KPG has tenders worth between MYR3bn and MYR4bn, with c.MYR1.5bn related to a data centre and logistics warehouse job.

• Medium to near term opportunities. Penang still has ample opportunities – eg dredging and reclamation works for Phases 2B and 2C of Seri Tanjung Pinang (STP) Phase 2 (GDV: MYR60bn) – which could be in excess of MYR500m, combined with upcoming launches with a total GDV of >MYR500m for STP in the next six months. Eastern & Oriental’s (EAST MK, BUY, MYR1.38) land at Elmina West (66 acres) could likely see the first launch of 360 stratified landed terrace houses in FY25 followed by >110 shophouses in FY26. Recall: KPG secured a MYR25m job in 3Q23 to undertake earthworks for said development at Elmina West. All in, we view the stock’s FY25F P/E of 14x to be undemanding vs the Bursa Malaysia Construction Index’s 16-17x during the 2017 construction upcycle.

• No changes in earnings estimates as results were in line with expectations. Hence, our SOP-derived TP of MYR2.67 remains. The TP also bakes in a 2% ESG premium. A rerating catalyst would be an earlier-than-expected win for new industrial jobs (such as data centres) before FY25. From FY26, we expect contributions from the property development JV with Aspen Vision Development in Seberang Perai, Penang,to kick in and further solidify KPG’s property arm, which currently makes up 4% of revenue.

• Downside risks: Property market slowdown and prolonged cost pressures.

Source: RHB Securities Research - 28 Nov 2024